Augmented Reality III –Patent Trolls pounce on innovative developers

Part 3of 3 by Joanne Frears, Jeffrey Russell Green

In my final instalment about augmented reality, I give you a fearsome story of appetite and intrigue; aspiration and ambition; innovation and destruction. Are you sitting comfortably? Then I will begin...

Once upon a few years ago, an agile band of hardy software developers with badly trimmed facial hair (let's call them the goaties) saw green pastures across the wide Atlantic Pond and embarked upon a journey to break into the augmented reality market there.

The first goatie made his bold foray into this green pasture, but no sooner had he closed his MacBook Pro after his first pitch, than a troll appeared brandishing a flimsy collection of patent claims. The timid goatie thought for a moment then said to the troll, don't threaten me, threaten my customer he's bigger than me and he's got more money. The troll 'kindly' agreed to let the first goatie leave (once he'd paid a small toll) and the goatie left the new pastures, casting a longing look over his shoulder at the fertile meadows he was leaving behind.

The next goatie approached the field and was quickly intercepted by the troll, this time waving a rolled up writ. The medium sized goatie looked around for help, but found none, so he told the troll “I don't like the way you do business, but I'll pay you to just go away.” He paid over the money and as a parting shot said ”But don’t sue my customer just because he's bigger and richer than me.” The troll thought for a moment and having extracted a slighter larger tax (let's call it a 'license fee', after all this is a bedtime story for lawyers), he grimaced (trolls don’t smile after all) and left the goatie to mop up software around the edges of the field, knowing both the undeveloped software landscape and the supplier would soon be gone.

Finally into the field entered the third goatie; bigger and more robust than the brothers that had gone before. The troll sidled up to the third goatie and, brandishing his patent wrapped club and the settlements made by the first and second goaties, demanded that the third goatie pay him a sizeable sum. The third goatie put his head down to think...

What does all this mean? I am genuinely saddened by the threat my AR clients face from US non-practising entities (also known as patent assertion entities) who coerce, bully and extort money, not from them, but from their customers, thereby reducing the market for AR in the US, increasing the overhead for developers and the cost to customers (which then have to include a percentage to cover PI & IP insurance and a sinking fund for legal fees). Whilst so much has been written about patent trolls that it may hardly seem worth replaying the issues here, what is apparent is that in an emerging field such as AR, these claims are a fact of life but they really do stifle innovation.

So, what can be done to avoid such claims? The answer is almost nothing. A software supplier with a patent of its own provides the classic sword for clients, but is no means an effective shield. What is more, an innovative agency or early start-up is unlikely to have a granted patent of its own anyway. A Japanese client once recounted a traditional proverb to me to the effect; 'the nail that sticks up highest is hammered down hardest.' So it is in the world of AR, the highest profile suppliers have had their customers targeted most often and the biggest brands using AR have been charged the highest toll. The pain of NPEs can probably be lessened with a mixture of legal and commercial strategies, but these are a salve and not a cure.

Legal Solutions: Challenge the NPE's Patent

Challenging the troll’s patent is a possibility, but is expensive. A full re-examination in the USA can cost upwards of a quarter of a million dollars and take 2-3 years. An alternative approach for business method patents, is review under the 'Covered Business Method' process. Here patents can be reviewed if the patent grant was fundamentally bad and the method claimed is questionable, but again this process takes time and costs at least $150,000 in fees.

A better option would be to challenge the NPEs patent under the Inter Partes Review process, which requires a re-exam to a determined within 12 months of filing and which has short deadlines for disclosure and limited discovery. The main advantages of IPRs is that there is no estoppel and they grant the petitioner a right to seek a stay of associated patent litigation, taking the pressure off the supplier or customer and pushing out the timing of legal fees. Stays are granted in about 75% of such cases. Additionally, by the six month point, the Patent Trials and Appeals Board will make an initial determination of whether the patent claims the applicant seeks to challenge are contestable or not, giving both sides a clear indication of which way the case is likely to go. If sufficiently bleak for the NPE, this determination can be useful for suppliers and customers in securing a settlement at a greatly reduced rate or in seeing off the NPE entirely. In just over eighteen months since the IPR process was launched, nearly 1,000 cases have been filed but only 20 have gone all the way to determination, indicating the lack of appetite NPEs have to defend these cases. Whilst an IPR only costs around $25k in official fees to instigate, costs can rapidly escalate when prior art has to be found and legal fees are incurred in preparing the submission. Add depositions as the matter progresses and very quickly the $25k to kick off becomes a drop in the ocean of six figure legal fees. Of course, the same goes for the NPE as contingency fee arrangements aren't available for IPRs!

Whilst the NPEs strategy remains to make nuisance claims and settle for sums just below the cost of first stage litigation - in the knowledge that most customers would rather settle than be involved in a scrap with a troll - none of the above methods seem particularly attractive as all of them are costly and have no opportunity for recovery of fees. This economic point is one much debated on Capitol Hill as the US Legislature works hard to put an end to unwarranted patent assertion.